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Barriers to Firm Entry, Financial Constraints, and Productivity

Author

Listed:
  • Timothy J. Kehoe

    (University of Minnesota)

  • Sewon Hur

    (University of Minnesota)

  • Kim J. Ruhl

    (NYU Stern)

  • Jose Asturias

    (University of Minnesota)

Abstract

We construct a model in which aggregate growth is driven by the continual entry of new firms that face barriers to entry that are exacerbated by financial frictions. We show that economies with more severe financial frictions have lower levels of output and consumption along the balanced growth path compared to economies with lower levels of financial frictions, even though all economies grow at the same, constant, rate. Improvements in financial markets generate faster-than-trend growth as the economy transitions to the new balanced growth path. The model generates sharp predictions regarding the rate of firm creation and aggregate output levels, as well as aggregate growth rates; these predictions are borne out in the cross country data.

Suggested Citation

  • Timothy J. Kehoe & Sewon Hur & Kim J. Ruhl & Jose Asturias, 2011. "Barriers to Firm Entry, Financial Constraints, and Productivity," 2011 Meeting Papers 687, Society for Economic Dynamics.
    • Handle: RePEc:red:sed011:687
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